By Michael Donahoe
If you want to build your wealth and pursue your financial goals, wealth management is an incredibly important tool. Unfortunately, wealth management is also often misunderstood.
My experience as a financial planning professional has shown me that it’s rare for a new prospect or client to start the wealth management process with a good understanding of what they can expect. It’s not often that they grasp the ways they can potentially benefit from a relationship with professionals who specialize in wealth management. This isn’t surprising, given the history of the financial services field and the investing and personal finance messaging we are exposed to through popular media and advertising.
So, what’s the reality? How do wealth management services and financial planners add value to their clients’ lives?
Process > Performance
Through 15 years in practice, the team at Harvest Asset Group has continually evolved our process to help clients and prospects better understand what’s really driving their level of success financially. Here’s a spoiler alert: it’s not the underlying performance of your investment portfolio. That alone, even if it’s significant, probably won’t solve the puzzle.
If you are like many of our clients, you partner with us because you want to feel confident that the steps you are taking are going to get you closer to reaching your most important goals. But there’s no magic bullet; there are no shortcuts to the dialogue, analysis, and discipline it takes to get to that level of confidence. Instead, our goal is to help find the most efficient (i.e., painless) way to build and sustain your financial independence and security. We devote a lot of energy and expertise to discover the actions and behaviors most likely to achieve the desired outcomes.
More importantly, once we determine the direction forward, we partner with you to navigate the complexity and avoid the types of mistakes that can make achieving your goals more difficult.
Discovering The Key Drivers of Success
Financial planning professionals have resources to assist in sophisticated analytics. While never perfect (because we cannot predict the future), software tools are great at illustrating “what if” scenarios to help understand the relative impact of different circumstances or actions. For example, we might set up a base scenario for retirement at age 65 that projects a favorable outcome. We can follow that scenario by changing the retirement age to 63 to see how it impacts the projected outcome.
Years of experience have helped us develop a pretty good sense of what factors have the most material impact. As you consider important decisions that involve trade-offs, we can use what we’ve learned to allow you to focus on the most important drivers of success.
Here are some examples of material drivers:
- Cost to sustain your current standard of living when you are no longer working
- Savings rate during your working years
- Cost of other goals, such as vacations or supporting family members
- Cost of healthcare and long-term care risk
- Retirement date
- Cost of taxation associated with drawing on your nest egg (This has a lot to do with the specific accounts you own, such as IRAs or Roth IRAs.)
And here are some examples of factors not as critical as most people think:
- Average rate of return earned in investment portfolios
- Timing of claiming your Social Security benefits
- Whether you finance, lease, or buy cars with cash
- Whether you pay off your mortgage with a lump sum upon retiring
Deciding How To Proceed
Conversations with an advisor about what choices have the most potential impact on your outcome can be very enlightening and can lead to an efficient and effective path forward.
Armed with a better understanding of the factors that have the most repercussions allows you to focus on the actions and behaviors likely to make the biggest difference as you work to achieve your goals. It is typical for clients to agree to a number of action steps that are quite different than what they initially expected.
What we often see is clients changing their minds about the best road map for their finances. For example, maybe having debt makes you uncomfortable so you start the planning process expecting to focus your efforts solely on paying down debt. What is likely to emerge from the process is a more nuanced approach that strikes a balance between debt reduction and saving.
Navigating And Coaching Over Time
Advisors provide value in immeasurable ways, but two factors in particular make having an ongoing relationship with an advisor incredibly beneficial.
The first is complexity. Questions involving financial planning for retirement, taxes, investing, risk management, and estate planning all impact one another, and each area can involve complexity which is over most people’s heads. This leads to decisions that are not fully informed, which results in opportunity costs. These are missed opportunities that, if you had captured and acted on, would have benefited you financially. You don’t receive an invoice for missed opportunities, but if you knew the real costs, you would surely act.
The second factor is behavioral. Most people underestimate the challenges of adhering to a disciplined strategy during difficult times such as market corrections. Instinctive human behavior can be the enemy of the investor, and emotionally based decision-making can put an otherwise sound financial plan in harm’s way.
To help clients in the best way possible, we need to be intimately familiar with their personal financial circumstances and goals. In addition, we must keep abreast of changes in the external environment, including taxation, investment best practices, risk planning tools, and estate planning options.
A Better Way
To sum it up, the way we add value to our relationships is to serve as a professional partner to help you navigate important financial choices that impact your life. With an intimate understanding of what you face day in and day out, and specialized skills and resources, we help identify opportunities and coach actions/behaviors which can make a difference in your financial life. If you want to experience this difference firsthand, call us at (207) 775-1151 or email us at firstname.lastname@example.org to get started!
Michael Donahoe is the founder and principal of Harvest Asset Group, LLC, an independent, fee-only financial planning and investment management advisory firm in Portland, Maine. Michael enjoyed a successful corporate career in marketing and sales before transitioning to the financial planning profession, founding his firm in 2012, where he now leads the client services team and serves as the firm’s chief compliance officer. Michael earned his MBA degree from George Washington University and completed his educational requirements to earn the CFP® mark of distinction at the University of California, Berkeley. He is a Fee-Only and NAPFA registered financial advisor, a designation which followed the completion of rigorous continuing education requirements. Michael has lived in the Portland area since relocating from San Francisco in 1995 to be closer to family. He is active in community affairs and spends his non-working time enjoying the natural beauty of Maine.